(Bloomberg) -- Cronos Group Inc. Chief Executive Officer Mike Gorenstein told a group of Wall Street types Tuesday that the Canadian cannabis company will be “aggressive” regarding a U.S. CBD launch, spurring a Bank of America Merrill Lynch two-notch upgrade on the shares. The stock rose as much as 15.8% Wednesday in New York, the biggest intraday gain since Feb. 4.
Speaking at a luncheon hosted by the Consumer Analyst Group of New York (CAGNY), Gorenstein added that he's not talking “that long of a way out” regarding the company's entry into the U.S. market. These comments resulted in analyst Christopher Carey boosting his rating on the stock to buy from underperform, which had been based on valuation. He has become the leading bull on the shares with his Street-high 12-month price target of C$27/US$20 per share, up from C$17/US$13.
Carey said in a research note that Cronos' partnership with Altria Group Inc., which also owns 45% of Cronos, is “key to winning the U.S.” Rather than entering the United States through a cannabis-retailer acquisition, the analyst sees Cronos leveraging Altria's distribution -- its presence in 230,000 stores -- to launch its own products. “The potential to scale distribution nationally via Altria separates Cronos vs peers,” he said.
The analyst has greater confidence that Cronos is close to announcing its launch into the largest market in the world for cannabis-derived compounds. This will be a “significant catalyst” as it improves near-term visibility, he said. With its C$2.4 billion cash hoard and with partners such as Altria, Cronos could become a “vastly different company in the years ahead.”
To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper, Morwenna Coniam
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